Small Business Must Adapt Their Business Plan

A Recap of What Has Happened: During the earlier part of the decade (2001 – 2006) small businesses found there business environment easily managed. Revenues simply increased by 10% or more every year. Most small business owners are highly skilled in leadership, management, have a sale’s personality and\or a technical skill. These skill sets are a good fit for and can accelerate revenues increases in times which growth occurs.

Small businesses saw a sales increase on the income statement and debt increase on the balance sheet. Generally speaking, small businesses became focused on growth (only revenue growth) and overlooked other accounting metrics. The growth decisions made by small business owners omitted the risks of the overall financial position of the company. A result for small businesses was an expansion of their production capabilities. Companies over expanded their production capabilities through purchasing fixed assets (vehicles, equipment, furniture, etc) through debt obligations. Some businesses made these purchases by being enticed by tax benefits. The tax benefits were paid by debt, which means they received a deduction in the year they made the purchase, but did the cash outflow was over the next several years. This would later come back to haunt small businesses by having cash outflow without an offsetting tax deduction (i.e. paying off debt is not tax deductible).

Small business owners general choose to become a “flow through” entity for taxes (s-corporations and partnership). These entities, generally speaking, do not tax equity distributions (i.e. dividends). The small business owners used the tax regulations to exhaust all capital in their company. This worked efficiently during times when the small business owner could fuel growth through debt. With this no longer the case and small businesses are no longer able to depend on financial institutions for borrowing, small businesses will need to fuel their own growth through their own equity. This means owners will have to sacrifice by leaving monies inside the company (no taking equity distributions).

Overall, from 2002 through 2006 (perhaps even into 2008) being a business owner was fundamentally effortless. Risk was factored out of the equation. Group think began sneaked in. Group think is when no one disagrees or is ostracized for disagreeing. Realists were considered pessimists in the sea of optimists. The realist would be proven the victor, but there would be no celebration.

A Forecast Of & A Solution For The Future: The business environment has changed and will continue to be challenging for several years according to several economists and articles in Barron’s. The business model of the past (easy revenue growth, lots of debt and little equity) no longer matches the current environment. Small businesses have had their revenues cut by up to 30% (if not more) and have had financial institutions not renew and\or call loans. Small businesses will need to reposition their balance sheet to include high current asset balances (especially cash), reduce debts and increase their equity as well as rethink their strategy.

Small business owners need to immediately meet with their board of directors’ and\or advisors (or create a board) to begin to develop a new business model. The new business model will need to help reposition their company’s financial and business position to be able to survive the next several years. Small businesses must become more innovative and efficient so make sure the board participants have the ability to be creative and the environment to speak freely (in order to tell you what you need to hear, not what you want to hear). Speaking of what you may not want to hear, a lot of sacrifice and longer hours may be warranted in the new business model.

Life After Retirement: Writing a Small Business Plan

Just because you’re retired, it doesn’t mean that you plan to sit at home doing nothing with your free time. Sure, maybe you’ll get up an hour later than usual or take a few more vacation days, but perhaps you’ve got an idea percolating for a new business or extra retirement income. Congratulations!

Before you do anything else to earn retirement income, it’s important to create a business plan to guide your efforts and help fund your new venture without having to tap into your retirement savings.

The Small Business Administration (SBA) recommends that a successful business plan should include the following:

  • Executive summary
  • Market analysis
  • Company description
  • Organization and management
  • Marketing plan
  • Services or products
  • Request for funding
  • Financials

The Executive Summary

Your business plan’s executive summary explains what your company is and where you want it to go. Because the summary is the first thing prospective investors and lenders will read, it needs to quickly catch their attention and make them want to keep reading.

Market Analysis

It’s important that you include a thorough market analysis to demonstrate that you understand where your product or service fits. The SBA suggests items to include are an industry description and outlook, target market information, market test results, lead times and an evaluation of your competition.

Company Description

Your company description should be a high-level look at the following key components:

  • What kind of business you’re planning on running
  • The markets you wish to reach
  • Your key differentiators
  • Profiles of top company management
  • The factors that you believe will make your business a success

Organizational Structure

The easiest way to illustrate your new company’s structure is with an organizational chart. You can create it in PowerPoint or Word – it doesn’t have to be fancy. But it does show that you’ve given a lot of thought about who will be doing what.

You’ll also want to include the legal structure of your business, whether it’s a sole proprietorship, an incorporated business, limited liability partnership or other business entity.

Marketing and Sales Strategies

You won’t be earning much retirement income if you don’t get the word out about your business. How will you do that? With a website and traditional advertising? Social media? Can you do it yourself or do you need to hire a marketing and sales team? Take some time to determine the right marketing course for you.

Products and Services

What are you selling? What services do you provide? For customers, it’s all about “What’s in it for me,” so it’s key to concentrate on offering products and services that have a distinct appeal to your customer base.

Requests for Funding

In this section of your business plan, you’ll want to focus on the amount of funding you will need to start your business. Include your current funding – such as your retirement savings – your future funding needs over the next five years, how you will use the funds, and any long-range financial strategies that would have an impact on your funding.

Financials

Finally, don’t over look the financials. Here’s what you may want to consider including in your business plan:

  • Historical Financial Data. If you already own a business that’s producing retirement income, include the last three to five years of your company’s income statements, the balance sheets and cash flow statements.
  • Prospective Financial Data. Prospective financial data is just as important in your business plan since lenders will want to see how you expect your company to do in the future.

Don’t Be Afraid to Dream Big

Stepping outside of your comfort zone, dreaming big and going after that dream is a real possibility. All it takes is some smart financial planning and you’re on your way to a new adventure – and the potential for more retirement income.